DataRoom AM: DJs for Myer?

Australia’s retail sector has been the subject of a major makeover in recent years, but investment banks are hoping there is a much bigger shake-up to come. Bankers are reportedly pushing for Myer to launch an all-scrip deal for rival department store David Jones, but surely they are clutching at straws?

Elsewhere, the auction of United Petroleum nears a conclusion, Deals Direct’s fortunes fluctuate on its first day on the ASX and the Dexus Property Group-led takeover of Commonwealth Property Office Fund edges towards an end.

Myer Holdings, David Jones

Could we be on the cusp of an eye-popping merger between David Jones and Myer Holdings?

According to The Australian Financial Review, bankers are pushing for a tie-up of two of the nation's best-known companies. The idea, recently floated to fund managers, reportedly involves Myer offering 1.4 shares for every David Jones share, a premium of 27.4 per cent based on yesterday’s closing prices.

The two rivals have encountered severe turbulence over recent years through a mixture of poor management, structural shifts in buying preferences and economic softness. But a merger seems unlikely to cure all that ails them, though long suffering David Jones shareholders would likely be very pleased with the idea of a near-30 per cent premium.

Complicating any such move is that Myer is worth slightly less than David Jones at the moment, making a takeover challenging even if it is an all-scrip deal. A merger of equals would be a more logical outcome, but it’s hard to see how the two bitter, long-time rivals would be able to find common ground on an appropriate way to carry out such a deal.

There are also competition issues to worry about, with any deal certain to draw close scrutiny from the Australian Competition and Consumer Commission.

Let’s put it in the highly unlikely column. Indeed, such a takeover appears scarcely more likely than a deal with EB Private Equity.

After trading up as much as 6.7 per cent above the $1.20 relisting price, investor support faded as the day went on to leave the shares flat at the close.

As a result the online retailer, which raised $6.2 million through the reverse listing, has a market capitalisation of just shy of $20 million.

The development follows a significant restructure of the Deals Direct business last year, with the company returning to profit in the first half of the current financial year and consequently mulling expansion opportunities that will likely include acquisitions.

Fellow online retailers Catch of the Day and OzSale, which have both previously hinted at floats of their own, will be watching the performance of Mnemon closely over the coming months. If it performs well, we could soon have three pure-play online retailers on the ASX.

United Petroleum

The third largest oil refiner in South Korea, S-Oil Corp, has said in a regulatory filing in its home country that it is in exclusive discussions to buy Australia’s United Petroleum.

The long-running auction process has seen plenty of names thrown about as possible buyers include Korea’s SK Innovation, a UK trading house and even Caltex Australia. But it appears as if S-Oil will claim the prize, with analysts tipping a likely sale price at anywhere between $600 million and $1 billion.

United Petroleum, founded by Avi Silver and Eddie Hersch, has an Australia-wide chain of service stations and convenience stores as well as fuel import terminals in Victoria, New South Wales, the Northern Territory and Tasmania.

The development comes amid rumours about a possible sale of Royal Dutch Shell’s local petrol retail and refining assets. Speculation has been swirling that a $3 billion sale is in the offing, with a JV between Macquarie Group and Glencore Xstrata seen as a leading contender. BP, too, is reportedly mulling a sale of its Australian retail division as a major shake-up takes place in the sector.

Dexus said it would also extend the offer deadline by one week as it looks to wrap up control of the Commonwealth Property Office Fund (CPA). The deal has the backing of CPA’s independent board.

Dexus and CPPIB fought off a rival offer from GPT Group after reaching an agreement to sell GPT certain CPA assets should it gain control of the company.

Macquarie Capital, Iglu

Macquarie Group’s capital markets and corporate advisory division has claimed a majority stake in Australian student accommodation group Iglu.

Macquarie Capital announced a joint venture deal with Singapore sovereign wealth fund GIC to claim a majority share for an undisclosed price. The two firms said it was the largest ever transaction in the local student accommodation sector, though that likely doesn’t mean much.

Iglu currently has two off-campus properties in Sydney and to capitalise on the high number of foreign students attending Australian universities by expanding.

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